Running a department without understanding the budget process is like driving a car without knowing how to steer.

November 2011

“As we know, there are known knowns --there are things we know we know. We also know there are known unknowns--that is to say, we know there are some things we do not know. But there are also unknown unknowns--the ones we don't know we don't know."

This comment earned former US Defence Secretary, Donald Rumsfeld, a "foot in mouth" award from the American Plain English Campaign.

Many people have accused accountants and financial gurus of spending much of their time providing technical financial information to others, believing that it was clear and helpful. They are accused of thinking that if anything is missing the recipients will surely ask pertinent questions, therefore there will be no “unknown unknowns.”

But is this confidence by chartered accountants and auditors justified? No, it is not justified. Understanding the principles of financial management helps every employee of an organisation, managers, line supervisors to senior executives, to support the company’s goals.
Financial management is a key tool in controlling and directing the resources of any business or organisation. Therefore, all employees, - -not only financial professionals but also managers whose responsibilities are largely non-financial-should be able to analyse the financial information that is essential to decision making in business.

Running a department, let alone a company, without understanding the budget process is like driving a car without knowing how to steer. Every employee needs a basic understanding of how to plan, use, and monitor adherence to a budget. Addressing the needs of your own budget process will help you support the financial processes and goals of the organisation as a whole.

Non-financial managers should learn the basics of budgeting and the management of cash flows and techniques vital to the budget process, including: forecasting revenue and expenses; choosing the best kind of budget strategy, and progressively measuring the success of a plan through the use of variance reports.

Can a profitable company with a positive net worth run short of cash? Without sound cash management, it certainly can. Every organisation, large and small, must manage the generation and expenditure of cash to ensure that bills can be paid on time.

Just as company executives, particularly the Chief Financial Officer, use financial statements to report their performance and their financial condition to investors and lenders, managers --including non-financial managers-should use the same statements to understand how the organisation is doing.

It's all about the bottom line! No matter how noble your cause or mission, without a healthy financial picture, no organisation can survive. Understanding the financial workings of an organisation - and how that affects the bottom line - is a critical skill for all positions.